22Oct16

AT&T Agrees to Buy Time Warner for $85.4 Billion

In the world of media, bigger remains better.

So in the wake of Comcast's $30 billion takeover of NBCUniversal and Verizon
Communications' serial acquisitions of the Huffington Post and Yahoo, AT&T has
bought one of the remaining crown jewels of the entertainment industry.

The telecommunications giant agreed on Saturday to buy Time Warner, the
home of HBO and CNN, for about $85.4 billion, creating a new colossus capable
of both producing content and distributing it to millions with wireless phones,
broadband subscriptions and satellite TV connections.

The proposed deal is likely to spur yet more consolidation among media
companies, which have already looked to partners to get bigger. This year,
Lionsgate struck a deal to buy the pay-TV channel Starz for $4.4 billion. And the
Redstone family, which controls both CBS and Viacom, has urged the corporate
siblings, which split 10 years ago, to consider reuniting.

AT&T and Time Warner said both of their boards unanimously approved the
deal.

"When Jeff and I started talking, it became clear to us very quickly that we
shared a very similar vision," Randall L. Stephenson, AT&T's chief executive, told
reporters on a conference call on Saturday, referring to Jeffrey Bewkes, Time
Warner's chief executive. "Time Warner, we believe, is the clear leader in
premium content."

Most analysts and investors have noted that Time Warner was part of one of the
biggest merger follies of all time, when it sold itself to AOL at the height of the
dot-com boom. That combination — also pitched on the idea of uniting content
and the internet — proved unwieldy and was later stripped apart to a few core
businesses.

This time, however, the rise of online outlets like Netflix, Amazon Prime and
YouTube and the shift of younger customers from traditional media have
pressured media companies to seek out consolidation partners. These media
companies are anticipating drops in fees from cable service providers and
declining revenue from advertisers. Getting bigger would give them more
negotiating leverage with both service providers and with advertisers.

Among their top priorities is finding new ways of reaching consumers. HBO, for
example, offers its HBO Now service to deliver shows like "Game of Thrones" and
"Westworld" to consumers who do not have cable subscriptions.

Even Disney, widely seen as the strongest content company, with brands like
Pixar, Marvel and Lucasfilm, has been grappling with how to overcome
challenges facing its network channels. ESPN, which long served as a growth
engine, is now facing declining ratings and subscriber erosion, putting advertising
sales into question.

"The biggest thing that we're trying to do now is figure out what technology's
role is in distributing the great content that we have," Robert A. Iger, Disney's
chief executive, said at a presentation at Boston College on Oct. 5.

Comcast's takeover of NBC has proved a model for this new world of media
deal-making. While the cable giant has occasionally been scrutinized for possible
regulatory violations, NBCUniversal has generally thrived under its current
ownership, with NBC enjoying a ratings comeback and Universal delivering a
wide range of hit films, from blockbusters like "Jurassic World" to dramas like
"Straight Outta Compton."

Still, Time Warner's deal with AT&T is likely to face tough scrutiny from
government regulators increasingly skeptical of power being consolidated among
a few titans. Donald J. Trump, the Republican nominee for president, indicated
on Saturday that he would seek to block the merger if elected "because it's too
much concentration of power in the hands of too few."

Over the last decade, Time Warner has spent significant time selling or spinning
off AOL, many of the Time Inc. stable of publications, and Time Warner Cable,
which was sold to another cable operator. The remaining businesses are HBO,
one of the most-admired pay-TV channels; Warner Bros. movie studios; and
cable channels that include CNN, TNT, Turner Sports and TBS.

Overseeing much of Time Warner's downsizing was Mr. Bewkes, for whom
Saturday's agreement serves as validation of sorts. He faced tough questions two
years ago when he turned down 21st Century Fox's bid of $85 a share, arguing
that the offer sharply undervalued his company.

Now, Mr. Bewkes has found a suitor willing to offer significantly more — $107.50
a share in cash and stock — and done so at a time when media companies are
under pressure to strike their own deals. AT&T's offer represents a roughly 35
percent premium to where Time Warner's stock was trading before news reports
of the merger talks emerged.

"Time Warner chairman and C.E.O. Jeff Bewkes and his senior management
team can see where the entire legacy media world is headed: secular decline,"
Richard Greenfield, a media analyst at BTIG, wrote in a research note on
Saturday.

Mr. Greenfield added, "We believe Bewkes will end up being remembered as the
smartest C.E.O. in sector — knowing when to sell and not overstaying his
welcome to maximize value for shareholders."

The announcement on Saturday also affirms the ambitious deal-making of AT&T.
One of the former so-called Baby Bells that arose from the 1982 breakup of the
original AT&T, the company has spent hundreds of billions of dollars on
acquisitions to reconstitute some of its parent's empire.

That has included buying DirecTV for $48.5 billion, adding satellite TV
subscriptions as an additional source of negotiating leverage with content
providers, along with the satellite company's steady stream of cash.

AT&T has also made other moves to acquire content. It has set up a joint
venture with Peter Chernin, a prominent media executive, and the company was
one of the bidders for Yahoo this year.

The telecom company has also been working on its own online video service, for
which Time Warner's trove of media could prove enormously helpful. Combining
with AT&T is meant to accelerate those efforts, Mr. Bewkes said. "We think this
is great for continued innovation in content," he said during Saturday's
conference call.

Still, AT&T's biggest rivals have not stood still. Comcast struck an agreement this
spring to buy DreamWorks Animation for $3.8 billion, adding the "Shrek" and
"Kung Fu Panda" franchises to its media holdings.

Verizon has charted a different course, focusing more on internet-based
properties and advertising technology players rather than traditional media
companies. Its $4.8 billion deal to buy Yahoo, rooted in the aging tech
company's hundreds of millions of users, follows previous takeovers of the
Huffington Post and AOL.

Not everyone seems persuaded by the latest flurry of deal-making. Disney
commented on the deal in a statement late Saturday, saying, "A transaction of
this magnitude obviously warrants very close regulatory scrutiny."

Senator Richard Blumenthal, Democrat of Connecticut, also put out a statement
cautioning approval. "I will be looking closely at what this merger means for
consumers and their pocketbooks, and whether it stands up to stands up to the
rigorous review standards set by the Department of Justice's antitrust division in
the last few years," he said.

And in a Twitter post on Saturday, Steve Case, the former chief executive of AOL
responsible for the doomed merger with Time Warner, wrote of AT&T's move,
"#DejaVu."

[Source: By Michael J. de la Merced, The New York Times, 22Oct16]

This document has been published on 25Oct16 by the Equipo Nizkor and Derechos Human Rights. In accordance with
Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a
prior interest in receiving the included information for research and educational
purposes.